STATE OF NORTH CAROLINA

Transcription

1 STATE OF NORTH CAROLINA THE UNIVERSITY OF NORTH CAROLINA AT ASHEVILLE ASHEVILLE, NORTH CAROLINA FINANCIAL STATEMENT AUDIT REPORT FOR THE YEAR ENDED JUNE 30, 2012 OFFICE OF THE STATE AUDITOR BETH A. WOOD, CPA STATE AUDITOR A Constituent Institution of the University of North Carolina System and a Component Unit of the State of North Carolina

2 THE UNIVERSITY OF NORTH CAROLINA AT ASHEVILLE ASHEVILLE, NORTH CAROLINA FINANCIAL STATEMENT AUDIT REPORT FOR THE YEAR ENDED JUNE 30, 2012 BOARD OF GOVERNORS THE UNIVERSITY OF NORTH CAROLINA THOMAS W. ROSS, PRESIDENT BOARD OF TRUSTEES CISSIE STEVENS, CHAIRMAN ADMINISTRATIVE OFFICERS DR. ANNE PONDER, CHANCELLOR JOHN G. PIERCE, VICE CHANCELLOR FOR FINANCE AND CAMPUS OPERATIONS

3 STATE OF NORTH CAROLINA Office of the State Auditor Beth A. Wood, CPA State Auditor 2 S. Salisbury Street Mail Service Center Raleigh, NC Telephone: (919) Fax: (919) Internet AUDITOR S TRANSMITTAL The Honorable Beverly E. Perdue, Governor The General Assembly of North Carolina Board of Trustees, The University of North Carolina at Asheville We have completed a financial statement audit of The University of North Carolina at Asheville for the year ended June 30, 2012, and our audit results are included in this report. You will note from the independent auditor s report that we determined that the financial statements are presented fairly in all material respects. The results of our tests disclosed no deficiencies in internal control over financial reporting that we consider to be material weaknesses in relation to our audit scope or any instances of noncompliance or other matters that are required to be reported under Government Auditing Standards. North Carolina General Statutes require the State Auditor to make audit reports available to the public. Copies of audit reports issued by the Office of the State Auditor may be obtained through one of the options listed in the back of this report. Beth A. Wood, CPA State Auditor

4 TABLE OF CONTENTS PAGE INDEPENDENT AUDITOR S REPORT...1 MANAGEMENT S DISCUSSION AND ANALYSIS...3 BASIC FINANCIAL STATEMENTS University Exhibits A-1 Statement of Net Assets...11 A-2 Statement of Revenues, Expenses, and Changes in Net Assets...13 A-3 Statement of Cash Flows...14 Component Unit Exhibits B-1 Statement of Financial Position...16 B-2 Statement of Activities...17 Notes to the Financial Statements...19 INDEPENDENT AUDITOR S REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING AND ON COMPLIANCE AND OTHER MATTERS BASED ON AN AUDIT OF FINANCIAL STATEMENTS PERFORMED IN ACCORDANCE WITH GOVERNMENT AUDITING STANDARDS...43 ORDERING INFORMATION...45

5 STATE OF NORTH CAROLINA Office of the State Auditor Beth A. Wood, CPA State Auditor 2 S. Salisbury Street Mail Service Center Raleigh, NC Telephone: (919) Fax: (919) Internet INDEPENDENT AUDITOR S REPORT Board of Trustees The University of North Carolina at Asheville Asheville, North Carolina We have audited the accompanying financial statements of The University of North Carolina at Asheville, a constituent institution of the multi-campus University of North Carolina System, which is a component unit of the state of North Carolina, and its discretely presented component unit, as of and for the year ended June 30, 2012, which collectively comprise the University s basic financial statements as listed in the table of contents. These financial statements are the responsibility of the University s management. Our responsibility is to express opinions on these financial statements based on our audit. We did not audit the financial statements of The University of North Carolina at Asheville Foundation, Inc., the University s discretely presented component unit. Those financial statements were audited by other auditors whose report thereon has been furnished to us, and our opinions, insofar as they relate to the amounts included for that entity, are based on the report of the other auditors. We conducted our audit in accordance with auditing standards generally accepted in the United States of America and the standards applicable to financial audits contained in Government Auditing Standards, issued by the Comptroller General of the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. The financial statements of The University of North Carolina at Asheville Foundation, Inc. were not audited in accordance with Government Auditing Standards. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and the significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit and the report of other auditors provide a reasonable basis for our opinions. In our opinion, based on our audit and the report of other auditors, the financial statements referred to above present fairly, in all material respects, the respective financial position of The University of North Carolina at Asheville and its discretely presented component unit as of June 30, 2012, and the respective changes in financial position and cash flows, where applicable, thereof for the year then ended in conformity with accounting principles generally accepted in the United States of America. 1

6 INDEPENDENT AUDITOR S REPORT (CONCLUDED) In accordance with Government Auditing Standards, we have also issued our report dated October 8, 2012 on our consideration of the University s internal control over financial reporting and on our tests of its compliance with certain provisions of laws, regulations, contracts, grant agreements, and other matters. The purpose of that report is to describe the scope of our testing of internal control over financial reporting and compliance and the results of that testing, and not to provide an opinion on the internal control over financial reporting or on compliance. That report is an integral part of an audit performed in accordance with Government Auditing Standards and should be considered in assessing the results of our audit. Accounting principles generally accepted in the United States of America require that the Management s Discussion and Analysis be presented to supplement the basic financial statements. Such information, although not part of the basic financial statements, is required by the Governmental Accounting Standards Board, who considers it to be an essential part of financial reporting for placing the basic financial statements in an appropriate operational, economic, or historical context. We have applied certain limited procedures to the required supplementary information in accordance with auditing standards generally accepted in the United States of America, which consisted of inquiries of management about the methods of preparing the information and comparing the information for consistency with management s responses to our inquiries, the basic financial statements, and other knowledge we obtained during the audit of the basic financial statements. However, we do not express an opinion or provide any assurance on the information because the limited procedures do not provide us with sufficient evidence to express an opinion or provide any assurance. Beth A. Wood, CPA State Auditor October 8,

7 THE UNIVERSITY OF NORTH CAROLINA AT ASHEVILLE MANAGEMENT S DISCUSSION AND ANALYSIS Overview of the Financial Statement Information The University of North Carolina at Asheville (UNC Asheville) provides this overview and management discussion and analysis to assist in understanding the statements and notes to the financial statements presented herewith. These statements are prepared in accordance with pronouncements issued by the Governmental Accounting Standards Board (GASB) and include the Statement of Net Assets, the Statement of Revenues, Expenses, and Changes in Net Assets, the Statement of Cash Flows, Notes to the Financial Statements, component unit Statement of Financial Position, and Statement of Activities. Comparative information for the prior fiscal year is also presented in the condensed financial statements. The Statement of Net Assets presents assets, liabilities, and net assets (the difference between assets and liabilities) as of the date of the fiscal year end (June 30). This statement assists in the determination of the financial condition of the University. Condensed Statement of Net Assets 2011 Fiscal Year 2012 Fiscal Year (as restated) $ Change % Change Current Assets $ 26,372, $ 25,463, $ 908, % Capital Assets 188,678, ,733, ,944, % Other Noncurrent Assets 11,450, ,873, (18,422,775.87) % Total Assets 226,501, ,069, ,431, % Current Liabilities 8,039, ,887, (848,065.15) % Noncurrent Liabilities 46,464, ,644, (2,179,736.72) -4.69% Total Liabilities 54,503, ,531, (3,027,801.87) -5.26% Invested in Capital Assets, Net of Related Debt 146,917, ,212, ,704, % Restricted - Nonexpendable 7,100, ,112, , % Restricted - Expendable 3,776, ,450, (674,349.97) % Unrestricted 14,202, ,762, ,440, % Total Net Assets $ 171,997, $ 167,538, $ 4,458, % Effective July 1, 2011, the General Assembly ratified House Bill 200 stating that pursuant to G.S , administration and state appropriations for The North Carolina Arboretum would move from The University of North Carolina at Asheville to Western Carolina University. Prior year net assets have been restated to reflect the move representing a decrease in net assets of $14.7 million. The total assets of the University increased this year by $1.4 million. This amount is exclusive of the Arboretum move which is represented in the 2011 restatement of net assets. The $1.4 million increase includes an increase in current assets of $0.9 million, an increase in net capital assets of $18.9 million, and a decrease in other noncurrent assets of $18.4 million. 3

8 MANAGEMENT S DISCUSSION AND ANALYSIS (CONTINUED) The increase of $0.9 million in current assets primarily consist of an increase in unrestricted cash of $2.7 million, a decrease in current restricted cash of $0.9 million, a decrease in receivables of $0.4 million, and a decrease in inventories/other assets of $0.6 million. The increase in unrestricted cash of $2.7 million is primarily due to an increase of cash carried forward to next fiscal year allowed by the Office of State Budget and Management (OSBM) in the amount of $1.6 million for an additional summer session and an increase of $1.1 million in various institutional trust funds primarily to be spent upon the completion of Overlook Residence Hall. The decrease in current restricted cash of $0.9 million represents a decrease in capital projects and retainage payables. The current receivables change of $0.4 million represents a prior year receivable from the UNC Eshelman School of Pharmacy at The University of North Carolina at Chapel Hill (ESOP) for renovations. The decrease in inventories/other assets of $0.6 million primarily represents bookstore inventories that were transferred to Follett as part of the outsourcing of the bookstore to Follett. The increase in net capital assets of $18.9 million represents an increase in capital assets of $64.2 million, net of accumulated depreciation, and decreases in construction in progress of $45.3 million. The increase of $64.2 million include an increase in construction in progress for Overlook Residence Hall and renovations to the Rhoades/Robinson Hall not yet completed of $22.1 million, the capitalization of Governor s Village and the Wilma Sherrill Center for $44.6 million, a net increase of $.4 million for machinery and equipment and other and a decrease for net accumulated depreciation of $2.9 million. The decrease in construction in progress for is primarily due to the capitalization of Governor s Village and the Wilma Sherrill Center. Other noncurrent assets decreased in the amount of $18.4 million. This decrease of $18.4 million was primarily due to a decrease in noncurrent restricted cash of $19.3 million and an increase in endowment investments of $0.8 million. The decrease in noncurrent restricted cash of $19.3 million was primarily due to the use of bond proceeds for the construction of the Overlook Residence Hall and the renovations of Governor s Village, and the use of contributions for the construction of the Wilma Sherrill Center. The increase in endowment investments was primarily due to the Thomas M. Howerton professorship. Total liabilities decreased $3.0 million which consists of a decrease in current liabilities of $0.8 million and a decrease in noncurrent liabilities of $2.2 million. The decrease in current liabilities of $0.8 million primarily consists of a decrease in accounts payable of $1.2 million and an increase in unearned revenue of $0.4 million. The decrease in accounts payable of $1.2 million primarily consists of a prior year ESOP payable for classroom renovations in the amount of $0.4 million and a decrease in capital projects and retainage payables for $0.8 million. The increase of unearned revenue primarily relates to summer school receipts carried forward. The decrease of $2.2 million in noncurrent liabilities primarily consists of a decrease in bonds payable of $1.6 million and a decrease of $0.4 million in notes payable. Net assets represent residual interest in the University s assets after all liabilities are deducted. For reporting purposes, they are divided into four major components: 4

9 MANAGEMENT S DISCUSSION AND ANALYSIS (CONTINUED) Invested in Capital Assets, Net of Related Debt represents the University s investment in capital assets such as movable equipment, buildings, land, infrastructure, and improvements, net of accumulated depreciation and outstanding principal balances of debt attributable to the acquisition, construction or improvement of those assets and the unspent debt proceeds restricted to capital purchases. At June 30, 2012, $146.9 million (85.42%) of the $172.0 million in net assets was attributable to the University s investment in capital assets, net of related debt. Restricted - Nonexpendable net assets primarily include the University s permanent endowment funds received from donors for the purpose of creating present and future income. These funds, according to donor restrictions, must be held in perpetuity or for a specified period of time. The increase in restricted - nonexpendable net assets is primarily due to the addition of the Thomas M. Howerton Professorship. Restricted - Expendable net assets are income from endowed funds, grants from others, and gifts with specific restrictions on spending. Restricted expendable net assets decreased $.7 million due to a decrease in residual cash held for debt service in the amount of $0.5 million and $0.2 million due to greater spending of endowed funds compressed by a largely flat equities market. Unrestricted net assets are not subject to externally imposed restrictions, although management may designate these funds for various academic and research programs and initiatives, as well as capital projects. This year, unrestricted net assets totaling $14.2 million represents 8.26% of total net assets. Unrestricted net assets increased by $2.4 million primarily due to increase of cash carried forward to next fiscal year in the amount of $1.6 million and an increase of $1.1 million in various institutional trust funds. Net Assets Unrestricted 8.26% Restricted Expendable 2.19% Invested in Capital Assets (net of related debt) 85.42% Restricted Nonexpendable 4.13% Net assets are shown in the graph below. The Statement of Revenues, Expenses, and Changes in Net Assets presents the revenues earned and the expenses incurred during the year. Activities are reported as either operating or nonoperating. Given a public university s dependency on revenues such as state 5

10 MANAGEMENT S DISCUSSION AND ANALYSIS (CONTINUED) appropriations, gifts, and investment income, which are prescribed by GASB as nonoperating revenues, operating expenses will exceed operating revenues, resulting in an operating loss. Net nonoperating revenues and expenses are integral components in determining the increase or decrease in net assets. Generally speaking, operating revenues are generated through the provision of goods and services, and include tuition and fees, contract and grant revenue, interest earnings on student loans, and sales and service revenue generated by student housing, the bookstore, and other enterprises. Operating expenses are the costs incurred to acquire or produce the goods and services provided and to conduct the affairs of the institution. Nonoperating revenues are revenues received for which goods and services are not provided. For example, state appropriations, while budgeted for operations, are reported as nonoperating revenue because they are provided by the state legislature without the legislature directly receiving commensurate goods and services in return for those revenues. Capital gifts and grants are considered neither operating nor nonoperating revenues and are reported after Income (Loss) Before Other Revenues. Condensed Statement of Revenues, Expenses, and Changes in Net Assets 2012 Fiscal Year 2011 Fiscal Year $ Change % Change Tuition and Fees $ 19,456, $ 17,311, $ 2,144, % Grants and Contracts 2,787, ,997, (1,209,869.22) % Sales and Services 9,883, ,583, , % Other Operating Revenues 1,096, , , % Total Operating Revenues 33,223, ,813, ,409, % Salaries and Benefits 48,131, ,572, (3,441,348.26) -6.67% Supplies and Materials 7,935, ,835, ,099, % Services 11,194, ,957, ,237, % Scholarships and Fellowships 5,857, ,738, (880,982.70) % Utilities 2,354, ,544, (189,322.43) -7.44% Depreciation 4,231, ,380, (148,872.64) -3.40% Total Operating Expenses 79,705, ,028, (2,323,560.77) -2.83% Operating Loss (46,481,700.45) (50,215,191.20) 3,733, % State Appropriations 35,659, ,189, (529,786.94) -1.46% State Aid - Federal Recovery Funds ,334, (2,334,610.00) % Noncapital Grants 8,584, ,938, (1,353,765.31) % Noncapital Gifts 2,846, ,136, ,709, % Investment Income (Including Investment Expense) 455, ,525, (1,070,256.92) % Interest and Fees on Debt (1,250,419.04) (1,337,457.02) 87, % Federal Interest Subsidy on Debt 569, , , % Other Nonoperating Revenues 76, , , % Total Nonoperating Revenues 46,941, ,122, (3,181,489.99) -6.35% Income (Loss) Before Other Revenues 459, (92,201.79) 552, % Capital Grants & Appropriations 3,038, ,478, (10,439,855.31) % Capital Gifts 210, ,607, (3,397,530.71) % Additions to Permanent Endowments 750, , % Increase in Net Assets 4,458, ,744, (13,285,385.26) % Net Assets, Beginning of Year, as restated 167,538, ,794, ,744, % Net Assets, End of Year $ 171,997, $ 167,538, $ 4,458, % 6

11 MANAGEMENT S DISCUSSION AND ANALYSIS (CONTINUED) Total operating revenues increased $1.4 million or 4.43%. The major components of this were an increase of tuition and fees, net in the amount of $2.1 million due to an increase in tuition and fee rates and a decrease in grants and contracts of $1.2 million. The decrease in grants and contracts consist primarily of a decrease in research grants of $0.3 million from the Rennaisance Computing Institute and the Lineburger Cancer research from UNC Chapel Hill and a private grant to the North Carolina Arboretum for $0.9 million. Total operating expenses decreased $2.3 million or 2.83%. The major components of this change were a decrease in salaries and benefits, an increase in supplies and materials, an increase in services, and a decrease is scholarships and fellowships. Salaries and benefits decreased $3.4 million with $2.7 million attributed to the North Carolina Arboretum move and $0.7 million due to appropriation/budget cuts. Supplies and materials increased $1.1 million primarily due to the purchase of furniture and equipment for the Wilma Sherrill Center, the new residence dorm, Rhoades/Robinson Hall and for campus repairs. Services increased $1.2 million primarily due to facility and campus repairs, health and counseling, video production, and leased equipment. Scholarships and fellowships decreased $0.9 million due to a decrease in NCSEAA (North Carolina Student Educational Assistance Authority) funding. Nonoperating revenues decreased $3.2 million. The major components of this decrease include a decrease in state aid/appropriations, a decrease in noncapital grants, an increase in noncapital gifts, and a decrease in investment income. State aid/appropriations decreased $2.9 million with $2.5 million attributed to the North Carolina Arboretum move and the remaining net decrease of $0.4 million is due to statewide budget cuts enacted by the Legislature and General Assembly. Noncapital grants (federal and state financial aid) decreased $1.3 million with a decrease in NCSEAA grants of $0.9 million and a decrease in Federal Smart and Federal Academic Grants of $0.4 million. Noncapital gifts increased $1.7 million with an increase of $1.2 million in gifts from The University of North Carolina at Asheville Foundation, Inc., and an increase in gifts for various university programs of $0.5 million. Investment income decreased $1.0 million due to lower investment returns from UNC Investment Fund, LLC. Capital grants, capital gifts, and additions to endowments are considered neither operating nor nonoperating revenues and are reported on the statement after Income Before Other Revenues. Capital grants decreased $10.4 million. Capital grants consist primarily of state aid in the form of COPS (Certificates of Participation) and General Obligation Bonds provided to UNC Asheville for the construction of the Wilma Sherrill Center and for renovations to Rhoades/Robinson Hall. The decrease is a result of the Wilma Sherrill Center being completed and the Rhoades/Robinson Hall renovations which are near completion. Capital gifts decreased $3.4 million. This decrease was primarily the result of a onetime transfer in 2011 from the University of North Carolina at Asheville Foundation, Inc. for the Janice W. Brumit Pisgah House in the amount of $3.0 million after construction was completed and a contribution in 2011 to the North Carolina Arboretum of $.3 million. 7

12 MANAGEMENT S DISCUSSION AND ANALYSIS (CONTINUED) Sales and Services, Net 11.57% Capital Gifts & Grants 3.80% Noncapital Gifts & Grants 13.38% Total Revenue by Source Investment and Other 3.45% State Appropriations 41.75% Operating Grants & Contracts 3.27% Tuition and Fees, Net 22.78% The operating expenses by function are shown in the graph below. Depreciation 5.31% Auxiliary Enterprises 16.08% Operating Expenses by Function Instruction 31.46% Research 2.61% Student Financial Aid 7.24% Operations & Maintenance of Plant 12.58% Institutional Support 11.49% Student Services 5.33% Public Service 2.31% Academic Support 5.59% The University s primary areas of expense are instruction and auxiliary enterprises. 8

13 MANAGEMENT S DISCUSSION AND ANALYSIS (CONTINUED) Debt Administration and Capital Assets UNC Asheville has several capital projects in various stages of planning and construction. Current projects are funded through capital grants, private fundraising, and revenue bonds. Projects include the final construction phase for the new Overlook Residence Hall, and renovations to Lipinsky and Karpen Halls. On April 18, 2012, UNC Asheville issued a $6.35 million revenue refunding bond with an average interest rate of 2.32%, Series The bond was issued to advance refund $6.28 million of outstanding UNC Asheville general revenue bonds, series 2002A, with an average coupon rate of 4.92%. For additional specifics, see Note 7, paragraph D of the Notes to the Financial Statements. The capital assets, net of accumulated depreciation, at June 30, 2012 were $188.7 million. For more detailed information about asset holdings, see Note 5 of the Notes to the Financial Statements. Economic Outlook Management believes that the University is positioned to continue its level of excellence of service to students, the community, and governmental agencies. However, it will continue to be a challenge to maintain service levels due to budget reductions. The University s ongoing efforts toward cost containment will help enable the University to provide the necessary resources to support this level of excellence. The University s management team continues to abide by the strategic priorities for the University, and is expecting reaffirmation of SACS (Southern Association of Colleges and Schools) accreditation in December A crucial element to the University s future will continue to be the level of state funding as well as managing tuition and fees while staying competitive and providing an outstanding college education for our students. There is a direct relationship between the growth of state support and the University s ability to control tuition growth, as declines in state appropriations generally result in increased tuition levels. UNC Asheville will strategically seek alternative funding sources through contract and grant funding as well as private fundraising. The University will continue to employ its investment strategy to maximize total returns, at an appropriate level of risk, while utilizing a spending rate policy to insulate the University s operations from temporary market volatility. The University will also continue to control its spending to be in accordance with available revenue sources. While it is not possible to predict the ultimate results, management believes that with cost reduction measures implemented and the continued support of the state of North Carolina and faithful donors, the University s financial condition is strong enough to weather the current economic uncertainties. 9

14 MANAGEMENT S DISCUSSION AND ANALYSIS (CONCLUDED) The University has raised admission standards for incoming freshman as we seek to enhance our national profile. The overall enrollment stability reflects a strong demand for UNC Asheville s nationally recognized, public liberal arts program. The following table compares fall semester enrollment of students for the previous five years Fall Semester Headcount Enrollment The University continues to receive high rankings in several national publications for its educational quality and value. Forbes Magazine ranked UNC Asheville 21 st in the nation as a Best Buy College, based on quality of teaching, career prospects, graduation rates, and student debt level. Of the eight universities in North Carolina that made the list, only UNC-Chapel Hill, at 13th, ranked higher than UNC Asheville. UNC Asheville was recently ranked 7th in the nation among Public Liberal Arts Colleges by U.S. News & World Report and is the only North Carolina institution listed among National Liberal Arts Colleges whose students graduate with the least amount of debt. UNC Asheville has been praised as a best value in the most recent rankings by the Princeton Review, Fiske Guide to Colleges, and Kiplinger s Personal Finance. 10

15 The University of North Carolina at Asheville Statement of Net Assets Exhibit A-1 June 30, 2012 Page 1 of 2 ASSETS Current Assets: Cash and Cash Equivalents $ 18,673, Restricted Cash and Cash Equivalents 5,876, Restricted Short-Term Investments Receivables, Net (Note 4) 993, Inventories 293, Notes Receivable, Net (Note 4) 535, Total Current Assets 26,372, Noncurrent Assets: Restricted Cash and Cash Equivalents 955, Restricted Due from Primary Government 33, Endowment Investments 9,973, Notes Receivable, Net (Note 4) 487, Capital Assets - Nondepreciable (Note 5) 34,761, Capital Assets - Depreciable, Net (Note 5) 153,917, Total Noncurrent Assets 200,128, Total Assets 226,501, LIABILITIES Current Liabilities: Accounts Payable and Accrued Liabilities (Note 6) 4,478, Due to Primary Government 12, Funds Held for Others 1, Unearned Revenue 1,549, Interest Payable 271, Long-Term Liabilities - Current Portion (Note 7) 1,726, Total Current Liabilities 8,039, Noncurrent Liabilities: Deposits Payable 94, Funds Held for Others 370, U. S. Government Grants Refundable 1,159, Long-Term Liabilities (Note 7) 44,839, Total Noncurrent Liabilities 46,464, Total Liabilities 54,503,

16 The University of North Carolina at Asheville Statement of Net Assets Exhibit A-1 June 30, 2012 Page 2 of 2 NET ASSETS Invested in Capital Assets, Net of Related Debt 146,917, Restricted for: Nonexpendable: Scholarships and Fellowships 578, Endowed Professorships 6,334, Loans 188, Expendable: Scholarships and Fellowships 1,656, Research 375, Endowed Professorships 1,387, Departmental Uses 148, Other 208, Unrestricted 14,202, Total Net Assets $ 171,997, The accompanying notes to the financial statements are an integral part of this statement. 12

17 The University of North Carolina at Asheville Statement of Revenues, Expenses, and Changes in Net Assets For the Fiscal Year Ended June 30, 2012 Exhibit A-2 REVENUES Operating Revenues: Student Tuition and Fees, Net (Note 9) $ 19,456, Federal Grants and Contracts 1,744, State and Local Grants and Contracts 434, Nongovernmental Grants and Contracts 608, Sales and Services, Net (Note 9) 9,883, Interest Earnings on Loans 4, Other Operating Revenues 1,091, Total Operating Revenues 33,223, EXPENSES Operating Expenses: Salaries and Benefits 48,131, Supplies and Materials 7,935, Services 11,194, Scholarships and Fellowships 5,857, Utilities 2,354, Depreciation 4,231, Total Operating Expenses 79,705, Operating Loss (46,481,700.45) NONOPERATING REVENUES (EXPENSES) State Appropriations 35,659, Noncapital Grants - Student Financial Aid 8,276, Other Noncapital Grants 308, Noncapital Gifts 2,846, Investment Income (Net of Investment Expense of $47,755.32) 455, Interest and Fees on Debt (1,250,419.04) Federal Interest Subsidy on Debt 569, Other Nonoperating Revenues 76, Net Nonoperating Revenues 46,941, Income Before Other Revenues 459, Capital Grants 3,038, Capital Gifts 210, Additions to Endowments 750, Increase in Net Assets 4,458, NET ASSETS Net Assets - July 1, 2011, as Restated (Note 16) 167,538, Net Assets - June 30, 2012 $ 171,997, The accompanying notes to the financial statements are an integral part of this statement. 13

18 The University of North Carolina at Asheville Statement of Cash Flows Exhibit A-3 For the Fiscal Year Ended June 30, 2012 Page 1 of 2 CASH FLOWS FROM OPERATING ACTIVITIES Received from Customers $ 34,029, Payments to Employees and Fringe Benefits (48,405,666.58) Payments to Vendors and Suppliers (21,253,159.55) Payments for Scholarships and Fellowships (5,857,190.53) Loans Issued (258,068.00) Collection of Loans 104, Interest Earned on Loans 4, Other Payments (16,318.58) Net Cash Used by Operating Activities (41,651,414.15) CASH FLOWS FROM NONCAPITAL FINANCING ACTIVITIES State Appropriations 35,659, Noncapital Grants - Student Financial Aid 8,276, Noncapital Grants 312, Noncapital Gifts 2,846, Additions to Endowments 750, William D. Ford Direct Lending Receipts 12,927, William D. Ford Direct Lending Disbursements (12,927,690.00) Related Activity Agency Receipts 4, Net Cash Provided by Noncapital Financing Activities 47,849, CASH FLOWS FROM CAPITAL FINANCING AND RELATED FINANCING ACTIVITIES Proceeds from Capital Debt 6,246, Capital Grants 3,039, Capital Gifts 37, Proceeds from Sale of Capital Assets Acquisition and Construction of Capital Assets (22,471,438.75) Principal Paid on Capital Debt (8,240,838.30) Interest and Fees Paid on Capital Debt (2,484,574.64) Federal Interest Subsidy on Debt Received 569, Net Cash Used by Capital Financing and Related Financing Activities (23,303,045.36) CASH FLOWS FROM INVESTING ACTIVITIES Proceeds from Sales and Maturities of Investments 269, Investment Income 255, Purchase of Investments and Related Fees (880,177.27) Net Cash Used by Investing Activities (355,010.74) Net Decrease in Cash and Cash Equivalents (17,459,860.87) Cash and Cash Equivalents - July 1, 2011, as Restated 42,964, Cash and Cash Equivalents - June 30, 2012 $ 25,505,

19 The University of North Carolina at Asheville Statement of Cash Flows Exhibit A-3 For the Fiscal Year Ended June 30, 2012 Page 2 of 2 RECONCILIATION OF NET OPERATING REVENUES (EXPENSES) TO NET CASH USED BY OPERATING ACTIVITIES Operating Loss $ (46,481,700.45) Adjustments to Reconcile Operating Loss to Net Cash Used by Operating Activities: Depreciation Expense 4,231, Allowances, Write-Offs, and Amortizations 27, Nonoperating Other Income 75, Changes in Assets and Liabilities: Receivables (Net) 366, Inventories 327, Deposit on Equipment 289, Notes Receivable (Net) (148,341.94) Accounts Payable and Accrued Liabilities (512,982.00) Due to Primary Government (3,534.34) US Government Grants Refundable (6,618.45) Unearned Revenue 399, Funds Held for Others (98,450.25) Compensated Absences (119,382.00) Deposits Payable 1, Net Cash Used by Operating Activities $ (41,651,414.15) RECONCILIATION OF CASH AND CASH EQUIVALENTS Current Assets: Cash and Cash Equivalents $ 18,673, Restricted Cash and Cash Equivalents 5,876, Noncurrent Assets: Restricted Cash and Cash Equivalents 955, Total Cash and Cash Equivalents - June 30, 2012 $ 25,505, NONCASH INVESTING, CAPITAL, AND FINANCING ACTIVITIES Assets Acquired through the Assumption of a Liability $ 2,769, Assets Acquired through a Gift 172, Change in Fair Value of Investments 230, The accompanying notes to the financial statements are an integral part of this statement. 15

20 The University of North Carolina at Asheville Foundation, Inc. Statement of Financial Position June 30, 2012 Exhibit B-1 CURRENT ASSETS Cash and Cash Equivalents $ 2,836, Sales Tax Receivable 1, Other Receivables 10, Promises to Give, Net 114, Total Current Assets 2,962, PROPERTY AND EQUIPMENT, NET 2,184, OTHER ASSETS Investments 18,645, Promises to Give, Net 99, Real Estate Held for Resale 214, Beneficial Interest in Perpetual Trust 134, Total Other Assets 19,093, Total Assets $ 24,240, CURRENT LIABILITIES Accounts Payable $ 62, Annuities Payable 52, Total Current Liabilities 115, NONCURRENT LIABILITIES Annuities Payable 430, Notes Payable 1,067, Total Noncurrent Liabilities 1,497, Total Liabilities 1,613, NET ASSETS Unrestricted 1,913, Temporarily Restricted 8,415, Permanently Restricted 12,298, Total Net Assets 22,627, Total Net Assets and Liabilities $ 24,240, The accompanying notes to the financial statements are an integral part of this statement. 16

21 The University of North Carolina at Asheville Foundation, Inc. Statement of Activities For the Fiscal Year Ended June 30, 2012 Exhibit B-2 Temporarily Permanently Unrestricted Restricted Restricted Total REVENUES Investment Income $ 53, $ 374, $ 0.00 $ 427, Family Business Forum 42, , Special Events 164, , Loss on Perpetual Trust (6,628.91) (6,628.91) Other Income , , Total Revenues 53, , (6,628.91) 656, PUBLIC SUPPORT Contributions 285, , , ,104, Contributions-Gifts in Kind 370, , Net Assets Released from Restriction 2,397, (2,297,926.04) (100,000.00) Total Revenues, Gains, and Other Support 2,736, (947,376.25) 343, ,132, EXPENSES Program Services 2,353, ,353, Supporting Services: Management and General 214, , Fund Raising 88, , Total Expenses 2,656, ,656, Change in Net Assets 80, (947,376.25) 343, (523,748.22) Net Assets at Beginning of Year 1,832, ,362, ,955, ,150, Net Assets at End of Year $ 1,913, $ 8,415, $ 12,298, $ 22,627, The accompanying notes to the financial statements are an integral part of this statement 17

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23 THE UNIVERSITY OF NORTH CAROLINA AT ASHEVILLE NOTES TO THE FINANCIAL STATEMENTS JUNE 30, 2012 NOTE 1 - SIGNIFICANT ACCOUNTING POLICIES A. Financial Reporting Entity - The concept underlying the definition of the financial reporting entity is that elected officials are accountable to their constituents for their actions. As required by accounting principles generally accepted in the United States of America (GAAP), the financial reporting entity includes both the primary government and all of its component units. An organization other than a primary government serves as a nucleus for a reporting entity when it issues separate financial statements. The University of North Carolina at Asheville is a constituent institution of the multi-campus University of North Carolina System, which is a component unit of the state of North Carolina and an integral part of the State s Comprehensive Annual Financial Report. The accompanying financial statements present all funds belonging to the University and its component unit. While the Board of Governors of the University of North Carolina System has ultimate responsibility, the Chancellor, the Board of Trustees, and the Board of Trustees of the Endowment Fund have delegated responsibilities for financial accountability of the University s funds. The University s component unit is discretely presented in the University s financial statements. The discretely presented component unit s financial data is reported in separate financial statements because of its use of a different GAAP reporting model and to emphasize its legal separateness. Discretely Presented Component Unit The University of North Carolina at Asheville Foundation, Inc. (Foundation) is a legally separate not-for-profit corporation and is reported as a discretely presented component unit based on the nature and significance of its relationship to the University. The Foundation acts primarily as a fund-raising organization to supplement the resources that are available to the University in support of its programs. The Foundation board consists of 25 to 36 elected directors. Although the University does not control the timing or amount of receipts from the Foundation, the majority of resources, or income thereon, that the Foundation holds and invests is restricted to the activities of the University by the donors. Because these restricted resources held by the Foundation can only be used by, or for the benefit of the University, the Foundation is considered a component unit of the University and is reported in separate financial statements because of the difference in its reporting model, as described below. 19

24 NOTES TO THE FINANCIAL STATEMENTS (CONTINUED) The Foundation is a private not-for-profit organization that reports its financial results under Financial Accounting Standards Board (FASB) Statements. As such, certain revenue recognition criteria and presentation features are different from the Governmental Accounting Standards Board (GASB) revenue recognition criteria and presentation features. No modifications have been made to the Foundation s financial information in the University s financial reporting entity for these differences. During the year ended June 30, 2012, the Foundation distributed $1,953, to the University for both restricted and unrestricted purposes. Complete financial statements for the Foundation can be obtained from the University Controller s Office, 207 Phillips Hall, One University Heights, Asheville, NC or by calling B. Basis of Presentation - The accompanying financial statements are presented in accordance with accounting principles generally accepted in the United States of America as prescribed by the Governmental Accounting Standards Board (GASB). Pursuant to the provisions of GASB Statement No. 34, Basic Financial Statements - and Management s Discussion and Analysis - for State and Local Governments, as amended by GASB Statement No. 35, Basic Financial Statements - and Management s Discussion and Analysis - for Public Colleges and Universities, the full scope of the University s activities is considered to be a single business-type activity and accordingly, is reported within a single column in the basic financial statements. In accordance with GASB Statement No. 20, Accounting and Financial Reporting for Proprietary Funds and Other Governmental Entities That Use Proprietary Fund Accounting, the University does not apply FASB pronouncements issued after November 30, 1989, unless the GASB amends its pronouncements to specifically adopt FASB pronouncements issued after that date. C. Basis of Accounting - The financial statements of the University have been prepared using the economic resource measurement focus and the accrual basis of accounting. Under the accrual basis, revenues are recognized when earned, and expenses are recorded when an obligation has been incurred, regardless of the timing of the cash flows. Nonexchange transactions, in which the University receives (or gives) value without directly giving (or receiving) equal value in exchange, include state appropriations, certain grants, and donations. Revenues are recognized, net of estimated uncollectible amounts, as soon as all 20

25 NOTES TO THE FINANCIAL STATEMENTS (CONTINUED) eligibility requirements imposed by the provider have been met, if probable of collection. D. Cash and Cash Equivalents - This classification includes petty cash, cash on deposit with private bank accounts, and deposits held by the State Treasurer in the Short-Term Investment Fund. The Short-Term Investment Fund maintained by the State Treasurer has the general characteristics of a demand deposit account in that participants may deposit and withdraw cash at any time without prior notice or penalty. E. Investments - Investments generally are reported at fair value, as determined by quoted market prices or estimated amounts determined by management if quoted market prices are not available. Because of the inherent uncertainty in the use of estimates, values that are based on estimates may differ from the values that would have been used had a ready market existed for the investments. The net increase (decrease) in the fair value of investments is recognized as a component of investment income. Endowment investments include the principal amount of gifts and bequests that, according to donor restrictions, must be held in perpetuity or for a specified period of time, along with any accumulated investment earnings on such amounts. Further, endowment investments also include amounts internally designated by the University for investment in an endowment capacity (i.e. quasi-endowments), along with accumulated investment earnings on such amounts. F. Receivables - Receivables consist of tuition and fees charged to students, charges for auxiliary enterprises sales and services, sales tax, and interest. Receivables also include amounts due from the federal government, state and local governments, and private sources in connection with reimbursement of allowable expenditures made pursuant to contracts and grants. Receivables are recorded net of estimated uncollectible amounts. G. Inventories - Inventories, consisting of expendable supplies, are valued at cost using the last invoice cost method. H. Capital Assets - Capital assets are stated at cost at date of acquisition or fair value at date of donation in the case of gifts. The value of assets constructed includes all material direct and indirect construction costs. Interest costs incurred are capitalized during the period of construction. The University capitalizes assets that have a value or cost of $5,000 or greater at the date of acquisition and an estimated useful life of more than one year. 21

26 NOTES TO THE FINANCIAL STATEMENTS (CONTINUED) Depreciation is computed using the straight-line method over the estimated useful lives of the assets, generally 10 to 100 years for general infrastructure, 10 to 100 years for buildings, and 5 to 30 years for equipment. The University does not capitalize collections considered to be inexhaustible or the general collections available for use in the Ramsey Library or in other campus locations. These collections adhere to the University s policy to maintain for public exhibition, education, or research; protect, keep unencumbered, care for, and preserve; and require proceeds from their sale to be used to acquire other collection items. Accounting principles generally accepted in the United States of America permit collections maintained in this manner to be charged to operations at time of purchase rather than be capitalized. Certain other collections are capitalized at cost or fair value at the date of donation. Depreciation is computed using the straight-line method over the estimated useful lives of the collections, which is generally 10 to 25 years. I. Restricted Assets - Certain resources are reported as restricted assets because restrictions on asset use change the nature or normal understanding of the availability of the asset. Resources that are not available for current operations and are reported as restricted include resources restricted for the acquisition or construction of capital assets, resources legally segregated for the payment of principal and interest as required by debt covenants, unspent debt proceeds, and endowment and other restricted investments. J. Noncurrent Long-Term Liabilities - Noncurrent long-term liabilities include principal amounts of revenue bonds payable, note payable, and compensated absences that will not be paid within the next fiscal year. Revenue bonds payable are reported net of unamortized premiums or discounts and deferred losses on refundings. The University amortizes bond premiums/discounts over the life of the bonds using the straight-line method. The deferred losses on refundings are amortized over the life of the new debt using the straight-line method. Issuance costs are expensed. K. Compensated Absences - The University s policy is to record the cost of vacation leave when earned. The policy provides for a maximum accumulation of unused vacation leave of 30 days which can be carried forward each January 1 or for which an employee can be paid upon termination of employment. When classifying compensated absences into current and noncurrent, leave is considered taken using a last-in, first-out (LIFO) method. Also, any accumulated vacation leave in excess of 22

27 NOTES TO THE FINANCIAL STATEMENTS (CONTINUED) 30 days at year-end is converted to sick leave. Under this policy, the accumulated vacation leave for each employee at June 30 equals the leave carried forward at the previous December 31 plus the leave earned, less the leave taken between January 1 and June 30. In addition to the vacation leave described above, compensated absences include the accumulated unused portion of the special annual leave bonuses awarded by the North Carolina General Assembly. The bonus leave balance on December 31 is retained by employees and transferred into the next calendar year. It is not subject to the limitation on annual leave carried forward described above and is not subject to conversion to sick leave. There is no liability for unpaid accumulated sick leave because the University has no obligation to pay sick leave upon termination or retirement. However, additional service credit for retirement pension benefits is given for accumulated sick leave upon retirement. L. Net Assets - The University s net assets are classified as follows: Invested in Capital Assets, Net of Related Debt - This represents the University s total investment in capital assets, net of outstanding debt obligations related to those capital assets. To the extent debt has been incurred but not yet expended for capital assets, such amounts are not included as a component of invested in capital assets, net of related debt. Restricted Net Assets - Nonexpendable - Nonexpendable restricted net assets include endowments and similar type assets whose use is limited by donors or other outside sources, and, as a condition of the gift, the principal is to be maintained in perpetuity. Restricted Net Assets - Expendable - Expendable restricted net assets include resources for which the University is legally or contractually obligated to spend in accordance with restrictions imposed by external parties. Unrestricted Net Assets - Unrestricted net assets include resources derived from student tuition and fees, sales and services, unrestricted gifts, and interest income. Restricted and unrestricted resources are tracked using a fund accounting system and are spent in accordance with established fund authorities. Fund authorities provide rules for the fund activity and are separately established for restricted and unrestricted activities. When both restricted and unrestricted funds are available for expenditure, the decision for funding is transactional based within the departmental management 23